Should Antidumping Laws Be Dumped

I. Introduction The purpose of this paper is to evaluate the arguments for replacing antidumping laws with competition laws or, alternatively, for recasting antidumping laws in the pattern of competition laws. This paper continues a debate to which Messerlin,(1) Marceau,(2) Hoekman and Mavroidis,(3) and Cass(4) have made valuable contributions. The paper is organized into nine sections. Part II reviews the circumstances under which firms engage in international price discrimination. Part III discusses the welfare implications of different types of dumping. Part IV evaluates the usefulness of antidumping laws as a tool for maintaining trade reform. Part V compares the technical standards of competition laws against the technical standards of antidumping laws, especially with regard to criteria for identifying predatory pricing and designing injury tests. Part VI examines whether the substitution of competition laws for antidumping laws is an unavoidable end-result of free trade agreements. Part VII analyzes whether the application of competition measures by the country of export is a suitable substitute for the exercise of antidumping laws by the country of import. Part VIII discusses whether the WTO Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (the WTO Antidumping Agreement) contains any qualitative improvements over previous rules. Part IX, finally, provides some tentative conclusions. II. Why Do Firms Dump? Firms charge different prices in different markets for a variety of reasons. Some of these reasons have to do with conditions in the country of import, while others have to do with conditions in the country of export. Price discrimination originating in conditions in the country of import arises from the need to keep landed export prices aligned with the going market price in the country of import. Generally speaking, this is the kind of price discrimination that involves the absorption of freight and tariff differentials vis-a-vis other suppliers in the country of import. The following example illustrates this argument. Suppose countries A, B, and C export an agricultural commodity -- say, wheat -- to country D. Suppose further that this agricultural commodity is traded internationally and thus the ex-works export price in all three exporting countries corresponds to the world price (i.e., the price resulting from the major exchange for this commodity). The domestic price (the price for consumption) in country D will be set by the landed export price from the cheapest supplier; that is, the exporter facing the lowest transportation expense and the lowest tariff to get into that country. Suppose that country A is the cheapest supplier into country D because it happens to be closest and because it has access to a preferential tariff. It follows that countries B and C would have to compress their ex-works export prices by the amount necessary to accommodate any freight and tariff differentials they may encounter relative to country A. If they did not do so, then they would be outpriced by their competitor. However, by compressing their ex-work export prices, countries B and C would make them lower than their ex-works prices for domestic consumption, thereby creating international price discrimination. If country B faced the same tariff as country A but a higher freight cost, it would dump in the amount of its freight differential. Likewise, if country C faced a higher tariff (because say, it is outside a free trade agreement formed by countries A, B, and D) and a higher freight cost, then it would dump in the amount of both its tariff and its freight differentials. Dumping can also be attributed to the absorption of exchange rate movements. If the importing country adjusts its exchange rate upwards, exporters may choose to lower their foreign-currency denominated prices so that, when converted into local currency at the new exchange rate, such prices do not increase by the full amount of the devaluation. …